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1、From the information provided, what audit opinion (type of audit report) would you recommend in each case? Fully justify your answer. 1) Grumpy has successfully undertaken the audit using substantive procedures but has one major disagreement with the client. Grumpy is annoyed that his client has, ov
2、er the past three years, ignored his formal written recommendations regarding internal control improvements. Grumpy has spent over a week each year working on control improvements trying to value add to the audit process. Grumpy feels he may need to take a firmer stand with the client on this issue.
3、 Unqualified opinion. The control system is the choice of the client. The auditor cannot issue a qualified opinion because client does not following management letter recommendations. 2) The new management of Dwarf Limited has not allowed the auditors access to the Directors minutes after the 30 Jun
4、e 2011, stating that the auditors have access to minutes up to the balance date and so they should have enough information to express an unqualified audit report. Dopey suspects the client does not wish to disclose a threat to the business by a new aggressive competitor who is heavily discounting pr
5、oducts of a similar nature. This information has been widely speculated in the press but has not been independently substantiated. Qualified opinion The clients refusal to allow the auditors to view the directors minutes after balance date is a scope limitation. After balance date events are a part
6、of the audit of the current year. 3) Happy has a client who refuses to change accompanying (附属) information that is not consistent with the audited financial statements. Apart from this problem, Happy is satisfied with the rest of the clients financial information presentation. Unqualified opinion w
7、ith other matterAn unqualified opinion with other matter should be expressed when accompanying information is inconsistent with the audited financial statements. 4) Century Limited is preparing a legal defence in consultation with its legal firm in response to a major litigation. The customer suing
8、Century limited are arguing that their production line shut down for a week because a faulty product supplied by Century Limited damaged their automated production facility. Century Limited argue that the claim has no basis and there is thus no need to disclose the litigation. Qualified opinionThe m
9、atter should be disclosed so this is a disagreement with management. The report would be qualified. (注意: if the matter of litigation was adequately disclosed, an unqualified opinion with emphasis of a matter should be issued due to significant uncertainty)5) XYZ sells solar panels specialising in la
10、rge industrial sized panels. Due to rapid technological innovation the future of XYZ Ltd is in question because a competitor is planning to sell industrial solar panels at a price which is below the cost price of XYZs solar panels. This is a going-concern uncertainty and may result in one of the fol
11、lowing audit opinions: (1) If there is adequate disclosure of the going-concern uncertainty, express an unqualified opinion and add an emphasis of a matter. (2) If there is inadequate disclosure, express a qualified opinion. (3) If it is highly probable that the entity will not continue as a going c
12、oncern express an adverse opinion.6) An audit client has been making losses over the past few years. After interpreting key financial ratios, your audit team has substantial doubt about the clients ability to continue as a going concern for a reasonable period of time. The client has adequately disc
13、losed its financial difficulties in a note to its financial report, which do not include any adjustments that might result from the outcome of this uncertainty. You concluded that there would be no circumstances to force the company to declare bankruptcy. Unqualified opinion with emphasis of a matte
14、rThe auditor concludes that there would be no circumstances to force the company to declare bankruptcy and there is adequate disclosure of the going-concern uncertainty.7) The audit of Flex ltd was extremely difficult this year as the client did not keep the appropriate books and records. The accoun
15、ting department was badly understaffed, so transactions were not promptly entered and reconciliations not performed. A casual accountant was employed to help sort out the mess but was unable even to reconcile the bank account at year end. You are not satisfied that all transactions that occurred dur
16、ing the year are reflected in the financial report. Disclaimer opinion The client did not keep the appropriate books and records and the auditor cannot obtain sufficient and appropriate evidences. So this is scope limitation. The auditors are not satisfied all transitions and so the case is pervasive. 8) You have received the draft annual report for Freebee Ltd. On reading the “year in review” you note
